When Starbucks announced its earnings miss last week, there were several critical takeaways.
By far the most popular was that Americans en masse had taken a hard pass on the Chestnut Praline Chai Tea Latte offered this holiday season.
"Holiday [limited time offers] and merchandise did not resonate with our customers as planned," noted Starbucks CEO Kevin Johnson during the earnings report.
Johnson later went on to clarify in a discussion with CNBC that though those figures were a disappointment – and perhaps spoke to some poor choices in holiday offerings – the sales losses they generated were mostly one-offs that really didn’t “have anything to do with the core of execution at the company.”
Analysts, however – like the group at RBC Capital Markets – begged to differ. They noted that the sales losses themselves, while problematic on their own, were actually a bit less worrisome than the overall performance of Starbucks’ mobile payments in 2017.
Or, more appropriately, the lack thereof.
“While beverage and food platforms are important sales drivers, the most important engine remains Starbucks’ digital platform, which has become less impactful over the last year,” RBC analysts wrote.
The mobile order ahead platform is still functioning as a sales driver, RBC noted, but a far less powerful one than it was 18 months ago, as its new and active user growth has slowed.
Starbucks, analysts concluded, can no longer coast on its now highly imitated mobile-order-ahead platform – particularly as there are now imitators who are doing it better, or at least with fewer implementation bugs.
As it turns out, one of the downsides of being a trailblazer is that you get to run face-first into all the branches, thus alerting others to their presence.
Undaunted, Starbucks said that more is exactly what they are planning to do in 2018 with mobile payment, building on the unique success they have already experienced.
In ways both small (but specific and immediate) and big, if somewhat vague and far-off.
The Immediate Expansion
Starbucks trumpeted its latest mobile payment use statistics, which – as of the close of 2017 – represented 30 percent of the brand’s total transactions. That makes Starbucks far and away the most successful mobile payments platform in the United States – a fact that Johnson and executive chairman and former CEO Howard Schultz were quick to remind investors of during the quarterly earnings call.
“Starbucks is constantly having the curiosity to see around corners and make big bets,” Schultz noted. “And I think there's probably no better example than what we've been able to do over the last five or six years, and what Matt and his team have been able to do, around digital mobile payments.”
The Starbucks loyalty program also grew by 11 percent in 2017, and now represents 14.2 million active members. Johnson also pointed out its scale in mobile payments and loyalty members, which positions it well for other innovative initiatives.
“The ubiquity of mobile and credit card payments is enabling us to begin an exploration of cashless stores in the U.S,” Johnson told investors. “By expanding capacity at peak, we now have the ability to offer Mobile Order and Pay to our non-rewards customers.”
The cashless store concept is already up and running in a Seattle pilot, with no official reports on its next planned expansion. The Mobile Order and Pay feature is currently being piloted in select locations, and will be ready for nationwide rollout in March to any customer using the Starbucks app, whether or not they have a stored value card saved.
Johnson noted that though they will allow customers to access the mobile payments experience separately from the loyalty experience, Starbucks will continue to work to grow that loyalty program, most notably through the firm’s first-ever co-branded card relationship with Chase/Visa.
The Bigger Vision
In a perhaps somewhat unexpected discussion for Starbucks’ earnings, Schultz offered two predictions about the future of digital payments.
The first is that digital currency – in some form – is likely to reset the future of how people everywhere pay.
He was also pretty adamant that it wasn’t going to be bitcoin.
“The reason I mention this is not because I'm talking about bitcoin, because I don't believe that bitcoin is going to be a currency today or in the future,” Schultz noted. “I'm bringing this up because as we think about the future of our company and the future of consumer behavior, I personally believe there is going to be one or a few legitimate trusted digital currencies off of the blockchain technology.”
Schultz’s second big prediction was that in the digital currency future, Starbucks would have an important role to play (though not as a coin provider, as Schultz firmly noted the company would not be issuing their own form of caffeine-themed crypto).
“We are in a very unique position to take advantage of what other tech companies and the blockchain technology will provide to potentially benefit financially, in terms of consumer behavior, and significantly create long-term shareholder value,” Schultz noted. “We think we have something to offer the companies that are chasing this, because we are in a position to create the trusted legitimate place in which this could be accepted, and possibly take advantage of the mobile payment digital platform that we have created.”
It’s a big vision – but a vague one. Schultz also noted that they “don’t have it all figured out yet,” and are not announcing any big investments.
When asked by PYMNTS about Schultz’s bitcoin comments, the Starbucks press office responded by email that they have no new comment to offer at this time, and no official plans regarding digital currency.
But Starbucks is clearly thinking about it – and about how they can ride the wave before it starts rising too quickly to catch.
If it ever rises at all, that is – the wild rollercoaster ride that has been the crypto market for the last couple of weeks indicates that the future of using trusted digital coins to buy things as commonplace as Starbucks lattes might be a bit further off than Schultz is letting on.
But Starbucks did get mobile payments right – long before anyone else was thinking about it – and launched the mobile order ahead program that has sparked a thousand (at least) copycats.
Meaning that at any given time, it’s probably worth listening to whatever it is they are talking about.